By Camilla Knudsen and John Acher
OSLO/HELSINKI (Reuters) - Norwegian papermaker Norske Skog (NSG.OL: Quote, Profile, Research, Stock Buzz) sees European newsprint prices increasing in 2009 by more than rising costs, giving some margin improvement, the company's chief executive said on Wednesday.
The paper industry has struggled to climb out of a six-year slump, dogged by overcapacity, soft demand and prices and rising costs of raw material and energy which have kept earnings poor. European producers have also suffered from a weak dollar that has put them at a disadvantage to North American rivals.
Newsprint, the paper newspapers are printed on, has been one of the hardest hit segments, partly because of the shift over the last decade to electronic publishing from print media.
Norske Skog sees a tighter balance in the European newsprint market due partly to capacity closures, but also aided by price increases in North America and steep price rises in Asia, Chief Executive Christian Rynning-Toennesen said.
"We believe in price increases in European newsprint next year," Rynning-Toennesen told the Reuters Paper Summit, calling it "highly likely." Newsprint prices are set in annual negotiations with customers, talks that will begin this autumn.
He declined to say by how much he expected prices to rise but said: "There's an unusually strong combination of price increases in the other major markets in the world plus a tightening of the market balance in Europe."
Norske Skog is the world's No. 2 newsprint producer. Other producers agreed that newsprint prices are headed up in Europe.
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"We are speaking of a substantial price increase," Swedish papermaker Holmen Chief Executive Magnus Hall told the summit.
Costs are rising, though there has been some easing off in the rise in energy prices and recovered paper prices have flattened out, Rynning-Toennesen said. "I still expect cost pressure throughout the rest of this year," he said.
"In European newsprint, it is likely that we will see price increases bigger than cost increases so that there is some margin improvement," Rynning-Toennesen said.
Magazine paper prices are up and can go further, he said.
Norske Skog has implemented 5 to 7 percent price rises from the second quarter into the third quarter on new contracts, he said. "And we still think there is room to increase prices of magazine paper further from where they are now," he said.
The demand picture in newsprint remains soft in the mature markets of Europe and North America.
"It's already quite obvious that the price increases we see in the United States are because of the (capacity) closures that have been done there because the market for newsprint in the U.S. is declining," he said. Continued...
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